Summary: Many Mormons do a great job of preparing for hard times with aggressive food storage, but often do little to preserve wealth should there be severe economic disaster. Those who are diligent savers and investors tend to put their wealth in stocks, bonds, and cash, leaving themselves unprotected for many potential economic problems in the future (inflation, recession, weakening of the dollar, etc.). Why is it, for example, that so few Mormons have considered precious metals as an element of wealth preservation?

Remember, the dollar is eroding. Even if your stocks are up over the past few years - not the case for many - once you factor in real inflation, you may be at a loss. Kudos to those who have taken steps to protect themselves from inflation.

24 comments:

Yeah...precious metals sounds like a wonderful place to put our money. Let's all go put all our money in the silver market!!!!! Let's do it now!!!

(In 1980, the silver market collapsed on "Silver Thursday" and many investors who put their money into a single hot commodity lost all their money.)

May I mention some of the bedrock principles of personal money management that would serve most of us better than putting our money into a single commodity?

1. Get out of debt.

2. Make sure you're spending less than you're making.

3. Save, if even a little to start. If you have access to a 401(k) with company matching, this is a good place to start.

4. Diversify. Make sure you have some cash savings (enough to cover 3-6 months of unemployment or disability). Make sure you have at least the same amount of food storage.

Once you're at this point, start investing in a range of options. Mutual funds. Real estate (if you're up to the amount of work necessary to own this type of investment). Stocks. Bonds. Commodities markets. If you eventually spread your investments over several different types, you can weather most storms. For a beginner, a reputable mutual fund with good historical returns, a good Morningstar rating, and low costs is a much wiser alternative over time than trying to play the market or buy individual stocks.

5. Buy low, sell high. Time your purchases. If you're trying to build food storage, buy wheat or rice or milk when the price is low. Don't run out and try and build up your food storage when the price goes up and everyone is buying in a panic. The same with getting into real estate or mutual funds. Don't rush out and buy investment properties when the market is red hot. Wait until things are down again, which they will be eventually.

My grandfather invester heavily in the silver market and bought each grandchild a large silver bar as s special inheritance. By the time that I cashed it in to buy sometime about 15 years ago, it had lost half of its value.

I'm not a financial person so this is an honest question. Should we not diversify to minimize risk instead of investing in one type of commodity? I wish I still had that silver bar now...

"Why is it, for example, that so few Mormons have considered precious metals as an element of wealth preservation?"

I am really not trying to be antagonistic, but here's my best guess at the answer to this question.

Our church leaders tell us to save our money. I've heard it a million times. Have long-term and short-term savings. They say it over and over and over again.

Have they ever mentioned precious metals? No. Does that mean it's not a good idea? No. It may even be the best idea in the world, Jeff. The reason more people don't do this kind of thing is because our church leaders tell us to save our money and build up our resources.

I personally agree with "researcher" on this topic, and I think Jeff does too for the most part. I think we need to think for ourselves and not rely on church leaders to give us all our financial advice, BUT as far as wealth preservation, if they say build up savings, I think it's an "ok" strategy that can't be looked down on.

If precious metals end up being as great an avenue as Jeff says, I'm ok with that. It just means I know who's house to go to when hard times hit. :)

I recently noticed in Alma 11 that the Nephites equated the value of a certain quantity of gold with a certain quantity of silver with a certain measure of grain. I'm no economist, but what might be the consequences of linking the value of a certain commodity with the value of a certain other commodity when each should have its own independently fluctuating supply and demand?

I'll echo some of the other comments regarding diversification. Any wise investor knows this crucial principle. It's simply unwise to put all of your eggs in one basket (including precious metals). I'm a big champion of gold and silver, but I'd be stupid not to look for other ways to save. Just as gold/silver are traditionally considered a hedge against the dollar, so too are there other hedges against precious metals.

Alma 11 seems to present what I would call a Gold-Grain Standard. Money is therefore not only specie (gold and silver), but also nonperishable foods (wheat, other grains).

If we look at severe crisis moments in the last hundred years (post WWII Germany, etc.), we can see that at the worst food becomes money. In those times specie is worthless, as you can't eat gold or silver.

cadams - great point. This is one I discuss often with people. If you look at when Germany had hyperinflation, some of their most valuable commodities become cigarettes, oil, eggs, and ammunition (among others).

It's one reason I've stored a lot of toilet paper. Heaven knows that some desperate people would barter some nice items for some soft two-ply. :)

I am thinking about investing in Ziff. I think the last big investor in metals was Noah. Things didn't work out when his investment went south.

Mosiah 11:8 And it came to pass that king Noah built many elegant and spacious buildings; and he ornamented them with fine work of wood, and of all manner of aprecious things, of gold, and of silver, and of iron, and of brass, and of ziff, and of copper;

I understand the idea of getting out of debut, I read once that debt is a great hedge against inflation. If the dollar's value is dropping, borrow a bunch now to buy "real" assets and pay your loan back with cheaper dollars later. That assumes you can lock in your interest rate now, and rates are still low. This is only somewhat tongue-and-cheek. If you can afford it, now is a tremendous time to buy a house. We all need someplace to live, right?

If the dollar's value is dropping, borrow a bunch now to buy "real" assets and pay your loan back with cheaper dollars later.

On paper, low-interest-rate (non credit card/loan shark) debt always looks like a win because you can usually find investments that return more than your debt's interest rate.

The problems come when things don't work out perfectly. If you sustain investments with debt they will disappear in a flash if/when you miss too many payments.

Previous hard times (like the Depression) have shown that lenders know just as well as you when money is worthless and become ruthless in foreclosing or collecting on real assets at the slightest excuse.

I'm willing to live with the lower return but vastly increased security that comes from not owing others money.

One of the best investments would be to help the poor. Of course don't help so much that you become destitute yourself. As has been mentioned, for many members of the church getting out of debt would be one of the best things they could do. As for precious metals I don't own any. Perhaps Helaman 13:31 deters me a little.

Researcher: Yeah...precious metals sounds like a wonderful place to put our money. Let's all go put all our money in the silver market!!!!! Let's do it now!!!

Wow, what brought that on, Researcher? That's not what I said at all. Did you read what I wrote??

The summary advocates considering "precious metals as an element of wealth preservation." The original post itself more specifically calls for "precious metals as part of one's diversified portfolio."

In dissing the concept of wealth preservation through a precious metals components, you are calling for less diversification, not more. People who stay non-diversified in cash and other paper-money-based assets are highly vulnerable to the specter of inflation. They're losing money. The smart money in this case isn't entirely in funny money that erodes with every second of insane paper money creation with our printing presses on full speed (and out electronic money generation engines turned to high speed). Precious metals help protect against that. I suggest you consider adding some to your portfolio (401k, etc.).

And please, I prefer it when people read what I actually wrote before they crank up the sarcasm.

I'm sorry if I misread you. I think that I have simply heard so much recently about people needing to run out and buy wheat, rice, gold, and all the commodities that are at record highs right now that I may have overreacted to something that you were not actually saying. I did read both posts, however, and it simply seemed like the same sort of advice that was flying fast and furious when the stock market was at a high around the turn of the century. Again, sorry for offending, particularly because I do not regularly comment on your blog.

paying off a fixed low-interest home loan at the expense of other investments is NOT diversifying.

Umm... I was advising against *sustaining* investments through debt deliberately acquired for that purpose, as per mikec's "borrow a bunch of money now to by real assets" idea.

Ironic that the advice to pay off debt can sometimes conflict with other general preparedness mandates.

I've heard that we should avoid non-necessary debt (investment debt is certainly in that category) but that a "fixed low-interest home loan" (the first one, at least) is appropriate. Where's the conflict there?

"It is not meet that a man should run faster than he has strength."

That's not disaster preparedness.

You know, my parents have always had food storage, and I've kept as much as frequent moves and student apartments allow, and guess what? It's saved our bacon 100 times over and never once due to a natural disaster!

Consider food storage. Things that destroy your home will probably not be good for the food, either (floods, fires, tornadoes are bad that way...); even if it does survive you'd better plan on stocking a small armory as well, or it will probably get looted the next day (or confiscated by the government).

I'm not convinced that the main point of these prophetic counsels has ever been to prepare us for "the big one," though that's an important secondary concern, especially when it's someone else "the big one" hits and we can share from our prosperity. We all have plenty of small problems preparedness will save us from while we wait for the 50 year earthquake that's 100 years overdue (or whatever).

"Our only confidence can be in God; our only wisdom obtained from Him; and He alone must be our protector and safeguard, spiritually and temporally, or we fall."

[Joseph Smith, emphasis added]

"Lay not up for yourselves treasures upon earth, where moth and rust doth corrupt, and where thieves break through and steal: but lay up for yourselves treasures in heaven, where neither moth nor rust doth corrupt, and where thieves do not break through nor steal: for where your treasure is, there will your heart be also.'

I am LDS. I have accumulated my storage and husband n i think we will end up feeding our kids n gkids as they do not have a good storage. ugh!However, a we senior citizens have noticed - America does not make anything, we only consume and serve. I am a nurse (caretaker), husband is a (retired cop)public servant. I sew, write, read, can hunt. My husband takes care of the property. We do not garden, or build or produce, but we could because we have in the past. If our country folds, how many youth can grow something or feed self,and family. When things crash, we sill need more than money, gold or precious metals to survive. We will need know-how and guts. texaslorraine